- 18 -
target cost plus target profit. The ceiling price is the maximum
amount the Government is required to pay under a contract,
regardless of the contractor's costs. The sharing ratio is the
negotiated percentage by which the Government and the contractor
split target cost overruns or underruns.
In negotiating the profit rate to be applied to Contract
2034, the weighted guideline method was used. This was a method
used prior to multiyear contracts, and GENDYN and the Air Force
recognized that the maximum weighting permitted should be used to
account for risks they believed would be inherent in multiyear
contracting, which at that time was a unique approach for Federal
Government contracting.
Using the maximum weighting allowed by Department of Defense
regulations to arrive at the target profit, GENDYN and the Air
Force agreed to the following contract values: Target cost,
target profit, and target price of $2,328,864,419, $315,902,006,
and $2,644,766,425, respectively. The agreed ceiling price was
$2,863,110,458. The sharing ratio was to be GENDYN 40 percent
and Air Force 60 percent, respectively.
The actual price that GENDYN would receive under Contract
2034 would, ultimately, be determined at the time the contract
was completed. It would be based upon a comparison of GENDYN's
actual cost with the negotiated target cost. If actual cost was
lower than the target cost, then GENDYN would receive its total
final cost plus the target profit plus 40 percent of the
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NextLast modified: May 25, 2011